NEW DELHI: A high-level committee on digital payments has suggested a tax to discourage cash transactions, a cap on the maximum allowable limit for large-size cash transactions and a complete abolition of charges on card payments to incentivise digital transactions.

Some of these recommendations of the Chandrababu Naidu-headed committee of state chief ministers could find a mention in the upcoming Union Budget on February 1. The recommendations seek to make digital transactions more cost effective and attractive than cash transactions. The committee has suggested a banking cash transaction tax on transactions of Rs 50,000 and above.

The panel wants a cap on large cash transactions but has not mentioned any threshold. The committee also wants the merchant discount rate (MDR) -- the charge levied on transactions, to be abolished.

"We are confident that our recommendations will be incorporated in the Budget," Naidu, the chief minister of Andhra Pradesh, said while briefing the media after submitting the interim report of the committee to Prime Minister Narendra Modi on Tuesday. Identifying the key stakeholders responsible for implementing its recommendations, the committee has asked the finance ministry to curb the use of cash for large transactions. "Consider levy of banking cash transaction tax (BCTT) on transactions of Rs 50,000 and above," the committee said.

"Consider cap on maximum allowable limit of cash in all types of larger ticket size transactions," it further said without suggesting the cap limit.

The committee has also suggested the creation of an authority and formulation of a policy to regulate changes that promote adoption of digital payments.

The committee has already submitted the Nandan Nilekani report to the Reserve Bank of India for consideration and operationalisation on lowering the merchant discount rate.

"We have given our recommendations. It is now up to the government and RBI to assess and implement them," Naidu said.

The move to tax higher cash transactions was first attempted by the UPA government. However, it was later withdrawn because of inadequate infrastructure for digital transactions. There has been a surge in digital transactions post demonetisation of old Rs500 and Rs1,000 notes from November 9, 2016. The government wants to ensure that this change sustains and measures could be announced in the budget to achieve that.

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